Main menu

Post navigation

Questions On Geithner Plan

Quick question(s):
When an investor group takes advantage of the new plan, doesn’t that set a market price for assets of the type they buy?
If that sets a market price, doesn’t that mean that all the banks have to mark their own assets of that type to that price?
And doesn’t that mean that many of them might find out they are insolvent?
And, since they are all banks for, doesn’t this force the hand of the FDIC?
Since the plan is designed to create a market, does the plan have something in it to prevent mark-to-market?

Like this:

Related

4 thoughts on “Questions On Geithner Plan”

Excellent questions. Do you think Paul Krugman is right…that it will not work?
I think Geithner is at best an experienced technician. He does not understand why. Just how. He does not have a compass and does not believe in true north.
True North:
-People will have to save more than they spend.
-Only this will recapitalize the surviving banks.
-Many banks will fail.
-Many commercial real estate deals will die this year.
– The broken credit markets are not the problem. Just a SYMPTOM.
-There is no way the Chinese will loan us $9 trillion over the next 6 years
– This will be seen as a crisis. In fact it will be CURE.
-The President signaled extreme weakness breaking his earmark promise.
-There is no reality or program behind his health or energy plan. Failure will be seen as crisis. In fact it will be part of the CURE.
-As the Paulson/Geithner/Bernake/Keneysian plan fizzles out, people will see that only personal savings will work.
-Lack of consumer spending shows the people know what is best. Do NOT spend, SAVE.
– Post 9/11 Bush said Spend. Post 2008, Obama says 1) fix the credit markets 2)borrow 3) Spend
The President asserted we pay or debts. But of course if we did, the National debt would be going down not up. We do not pay our debts. We borrow more and ROLL debt. Madoff ably and cheerfully paid off all accounts until the end. We will Madoff the Chinese in 6 years and they know it.
Thus the Chinese proffer:http://www.ft.com/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac.html

I think this plan is really brilliant, in the context of the “markets over government” economic paradigm that Geithner, Bernanke and for that matter Paulson believe in.
So it might “work” so far as to push of The Reckoning a few more years just as Greenspan’s housing bubble “worked” to push it off a while, leading to this crisis.
This “public private partnership” idea likely will create a “market” for the toxic waste. Of course, the problem is that those “instruments” were based on the values during the bubble, and honestly are worth less every day that housing prices get closer to where they SHOULD be. I think the “market” is going to come to that conclusion as well — so we are back to the underlying problem.
The banks really are sitting on assets they valued at high prices, and therefore are on their books at high valuations. But the real valuation is going to be much lower. This “market’ creation will show that. And that will show that the large banks ARE insolvent.
As for the Chinese, we are in a “death bet” with them. They loaned to us to buy the stuff they make. If they really do break from the dollar then they lose much of their savings. As that drops the dollar it raises their currency and it is no longer cost-effective to make stuff there and ship it here. It just us in the short term and turns us back into a manufacturing center in the long term. And millions of their people starve. So they are still not likely to do that.
We have our hands on each other’s throats — it’s not just a one-way arrangement.

One more thing — on government debt. Don’t forget that just a few years ago we were paying down over $200 billion each year of debt. That was the result of Clinton’s raising taxes on the rich — just a bit — which the Republicans said would destroy the country. And the rich were getting much richer from it, too.